Research Problem $1.$ Terry owns real estate with an adjusted basis of $$600,000$ and a fair market value of $$1,100,000.$ The amount of the nonrecourse mortgage on the property is $$2,500,000.$ Because of substantial past and projected future losses associated with the real estate development $($occupancy rate of only $37\%$ after three years$),$ Terry deeds the property to the creditor.

What are the tax consequences to Terry?

Assume that the data are the same, except that the fair market value of the property is $$2,525,000.$ As a result, when Terry deeds the property to the creditor, she also receives $$25,000$ from the creditor. What are the tax consequences to Terry? Your solution should include a discussion of the issue and

memorandum to the file and a client letter $($see pages $2-27$ to $2-28).$ Be sure to note in your solution the tax

code section$($s$),$ statutory provisions, or court cases that support your conclusions